The IRS Pursued a Man Whose Wife Embezzled $500,000
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Your Money Briefing. Money and Market Stories from The Wall Street Journal. I'm J.R. Whalen in New York. It's pretty common for two people to file their tax returns jointly. It's uncommon when two people file jointly and one person is convicted of embezzlement. We've got that story coming up. First, these money headlines. The 30-year fixed rate mortgage averaged 4.60% in the week of August 2nd. That's a six basis points rise and the second straight weekly gain for the 30-year fixed rate. The recent rise in mortgage rates comes even as the pace of sales in the housing market appears to be leveling off. Sales of previously owned homes fell to the lowest point in five months in June, and sales of newly constructed homes also tumbled.
Even the aggressive white-hot price growth of the past few years seems to be decelerating. And for years, companies have been taking measures to recoup pension overpayments, an issue federal tax officials have tried to address going back to the 1990s with a series of refinements to rules governing when and how companies must rectify such errors. But AT&T overpaid potentially hundreds of ex-employees and is now seeking full repayment and in some cases hiring a collection agency. Some errors AT&T identified amount to double counting in which retirees received benefits reflecting their full careers plus additional payments reflecting part of the same history. See the full story on WSJ.com. This is your Money Briefing from The Wall Street Journal.
Welcome back, everybody. Here on Your Money Briefing, we've discussed the pros and cons of filing a joint tax return. What we haven't discussed is what happens when you file a joint return with someone convicted of embezzlement. That is, until now. Wall Street Journal tax reporter Laura Saunders is here with a very unique and compelling story of one man's odd encounter with the IRS. So, Laura, let's just set the stage here. This goes back to 2010 when a man's wife embezzled about half a million dollars.
Yes, from a local blood bank where she was a bookkeeper accountant.
So you can draw blood from a stone, you can't draw... Okay, so that goes back to 2010. She's convicted and the IRS goes after him for almost $130,000. Who knew that embezzled money is taxable?
Well, he didn't know it. He didn't know that embezzled money is taxable and he didn't know that you can be in a lot of trouble if you sign a joint return with a tax cheat. When you sign that joint return and about a third of taxpayers do, you are 100% responsible for everything on it.
This is a true story, by the way, and what's intriguing here is that there's a process by which the law-abiding half of the joint filers can claim innocence.
Yes, it's called the Innocent Spouse Rule, and Congress passed it in 1971 and had tinkered with it ever since, and it's been expanded and changed. It can be fairly complex, but it is a rule that allows the innocent spouse to – it severs the liability. It allows the innocent spouse to get off of – out of – payments for bad tax behavior they weren't aware of.
And when this man argued his case, he outlined some scenarios in his life that the judge bought into.
Yes. Well, the law has factors it looks at. And the judge, in the opinion, which is public, listed all the factors and how he came out. And he came out with a whole, all his factors, almost all of them were positive. So here are some more. He wasn't financially sophisticated. He had an associate's degree. He was a factory worker in a cheese processing factory. They shredded and cut up cheese into cubes. And he trusted his wife to handle all their financial affairs. He knew nothing about money.
They're from Wisconsin, so the cheese connection perhaps?
Yes, exactly. And then the next thing was there was no benefit for him from lavish expenditures. He didn't see the money coming. They didn't pay down their house. They didn't buy a fancy car. She didn't come home with a boat for him or something like that. You know, one thing that messes up your innocent spouse claim is if you say, I didn't know about this, but my spouse just bought a car or gave me a mint coat or a diamond ring or something like that.
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